Vietnam privatisation gathers steam

Vietnam’s privatisation programme saw a notable success in 2017 with the sale of a 54% stake in the country's leading beer manufacturer. Peter Janssen investigates whether this move will open the floodgates.

After a slow start, Vietnam’s decades-old programme to partially privatise its vast stable of state-owned enterprises (SOEs) picked up steam in 2017, culminating on December 18 with the sale of a 53.59% government-held stake in the country’s leading beer manufacturer to one of Thailand’s leading conglomerates. Thai Beverage (TCC), via its local unit Vietnam Beverage, paid VND110,000bn ($5bn) for the majority holding of Saigon Beer Alcohol Beverage Corp (Sabeco), in what was Vietnam’s largest divestment deal to date.

And more deals are expected in 2018. According to a government announcement in 2016, Vietnam intends to partially privatise 137 businesses in which it holds a controlling stake by 2020. The state capital projected to be divested amounts to an estimated $13bn.

Besides Sebeco, the other major privatisation success story to date has been the sale of a 9% stake in Vinamilk, the country’s largest milk producer, with revenues of some $1.7bn in 2016. In December 2016, the State Capital Investment Corp sold a 5.4% stake in VinaMilk, again to Thailand’s TCC, and then another 3.6% to Jardine Capital & Carriage (Singapore) in November 2017. VinaMilk’s shares have skyrocketed on the HCMC Stock Market, so while the government’s stake in SOEs has declined from 100% to 36%, the value of that smaller shareholding has grown exponentially, sending a positive message on the benefits of privatisation to the government.

Stocked up

The Vietnam Stock Index rose more than 46% in 2017, bolstered by robust exports and impressive inflows of FDI (topping $17.5bn in actual investments in 2017 compared with $15.8bn in 2016). The healthy stock market will facilitate the SOE privatisation process as under the new equitisation decree passed in October 2017, SOEs must register for trading within 90 days of completing a public offering. Under the former decree this was not necessary and many SOEs refused to be listed to avoid disclosure.

Vietnam has been trying to partially privatise its SOEs since 1992, when they were first encouraged to equitise, i.e. transform from wholly state-owned companies to joint stock companies. Back then, when the communist country was just emerging from years of central planning, there were about 6000 SOEs dominating all sectors. By 2016, the government had equitised about 4500 SOEs, but still held more than 50% in 2000 and 100% in 700.

The push behind the stepped up privatisation process in 2017 to 2020 is driven by fiscal necessity. Vietnam is spending heavily on much-needed infrastructure building, resulting in rising public debt and budget deficits. In 2017, public debt was 62.6% of GDP, close to the government’s self-imposed ceiling of 65%. The other main motive for privatisation is to enhance the competitiveness of Vietnam’s private sector.

“Without the privatisation process, and the pressure to make the SOEs more efficient and profitable, they will not be able to compete on the international market at the regional standard,” said Andy Ho, chief investment officer at asset management company VinaCapital.

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